Sweet Home Public Works Director Mike Adams presented three options for water and sewer rate increases to the City Council on June 23.
The council considered the options during a work session and were scheduled to continue the discussion in a work session on Tuesday, June 30.
Councilor Jeff Goodwin responded by proposing a restructured rate schedule that begins charging users for the first 400 cubic feet of water they consume each month. Currently, the first 400 cubic feet of water for water customers each month is included in the base price of their bill.
The first option, on which Adams based his water and wastewater budgets for 2015-16, would increase the base cost, including the first 400 cubic feet of water, by $10.19. At 600 cubic feet, which is about the average use in Sweet Home, monthly bills would increase by $8.29. At 1,000 cubic feet of water use, the total monthly bill would increase by $4.49.
For water service, the option would increase the base rate from $17.90 to $24.11 and decrease the commodity charge from $7.48 to$6.78 per 100 cubic feet for the average residential consumer.
For sewer service, the option would increase the base rate from $36.70 to $40.68 and decrease the commodity charge from $6.45 to $6.20 per 100 cubic feet.
The base charge covers the system’s fixed costs, expenses incurred even if the utilities didn’t sell any water. The commodity charges cover the direct costs of producing the water. The commodity charge is applied only at 500 cubic feet or more of usage.
A residence using 600 cubic feet is charged the base rates, $54.60 combined, plus $27.86 for 200 cubic feet of water and sewer service, a total of $82.46 per month. The city also charges $1 per month for storm drainage.
The second option includes the increase in the base charge but does not change the commodity charge. Increasing just the base charge would increase all bills by $10.19 per month regardless of how much water is used.
The two options include full recovery of depreciation costs in the wastewater utility. Neither include capital reserve costs, and the water rate does not include depreciation recovery.
The third option is the minimum to cover the cost of the utilities, Adams told the council. That would increase the base charge for water from $17.90 to $21 and wastewater from $36.70 to $37, while decreasing the commodity charge for water from $7.48 to $6.78 per 100 cubic feet and $6.45 to $6.20 per 100 cubic feet for wastewater.
The third option would increase monthly bills for those using 400 cubic feet or less by $3.40. Those using 600 cubic feet per month would pay $1.50 more, while those using 1,000 cubic feet would pay $2.30 less per month.
The rates are supposed to cover the cost of operating the utilities, including debt payments, for one year, Adams said. An economic analysis completed last year recommended the rate include a 1.25-percent debt ratio, full depreciation recovery and an operating contingency of 3 percent.
None of the options presented by Adams include all of these provisions.
Adams included rate comparisons based on information gathered by the League of Oregon Cities. At 668 cubic feet, Sweet Home is above all regions of the state but the coast and the Willamette Valley. After the increase, it would be $3 to $20 above all of the regional averages based on 2014 data.
Among specific cities, Sweet Home has a lower rate than Lebanon, Newport, Stayton, Albany and St. Helen’s and a higher rate than Corvallis, Brownsville and Sisters. With option one, Sweet Home continues to trail Lebanon and Newport. Most of those comparisons do not include rate increases that may be planned for this year.
Goodwin proposed restructuring the rates and requiring all utility users to pay for each 100 cubic feet they use rather than including the first 400 cubic feet in the base charge.
When the City Council adopted the current method of calculating rates in 1999, it decided to include the first 400 cubic feet each month at the base rate, which is $54.60 currently. The council offset the charge by charging a higher commodity rate to be applied above 400 cubic feet of use.
In water, Goodwin proposed charging a base charge of $14.50 and a commodity charge of $2.50. In wastewater, he proposed a base charge of $25 and a commodity charge of $3.50.
He said those numbers still need adjustment.
He compared current Sweet Home rate per 100 cubic feet of water to other cities, such as Salem and Eugene and told the council that they’re paying a third or even a quarter of what Sweet Home residents are paying.
Overall, based on rates posted by Salem on its website, a resident will pay about $60 for 600 cubic feet of water, compared to $82.46 in Sweet Home.
“The commodity rates we’re charging are way too high,” Goodwin said, pointing to a graphic that showed decreasing overall usage even while the total number of customers increased. “What you’re seeing is exactly what these graphs show, which is the people aren’t even using water. They’re scared to use water. They’re coming in here angry because water’s too expensive. It’s not because they’re paying too much. It’s because they don’t feel like they’re getting what they paid for.”
Goodwin’s proposal, he said, would provide more revenue by charging less in the commodity charge, while those who use 400 cubic feet or less would face a maximum increase of $8.90 per month – at 400 cubic feet – which is less than the first two options presented by Adams.
Goodwin argued that charging for the first 400 cubic feet of water should offset the reduction in the base rate; and overall, the new rate structure would net more revenue while reducing bills for heavier users.
At 600 cubic feet, about the average usage, the cost of water would decrease from $82.46 to $75.50 per month.
He relies on the “elasticity of demand,” the extend that demand changes with changes in prices, to explain larger revenues.
If the commodity charge is lower, people will use more water, he said.
Under the current rate, “if you’re a heavier user, your price goes up really, really fast,” Goodwin said. “I think that’s discouraging water use. We sell water more profitably, and we sell more water.”
Councilor Bruce Hobbs noted that from 2010 to 2013, when rates remained nearly constant, usage dropped off. Even so, the decrease in usage has been relatively small.
Goodwin said it takes time for the market to adapt to changes in prices, and increases in water usage from lower commodity charges would take time to materialize.
Adams uses a spreadsheet, inputting various cost factors, to calculate rate proposals, and he explained that Goodwin’s numbers won’t cover the cost of the utilities.
That’s because it shows what happens selling 1.2 million gallons per day, Goodwin said, and then asked what it would cost if the city produced and sold 3 million gallons per day instead.
“We can double or triple the amount of water people get and charge them roughly the same amount of money as will cover our costs,” Goodwin said.
But even if the city didn’t increase the amount of water it sells, he believes his rate structure would provide a 16-percent increase in revenue by charging low-consumption users more.
City Manager Craig Martin told the council that when the council chose to include the first 400 cubic feet in the base charge, it was helping out the low-income, low-volume users, providing a buffer for them.
Those included seniors, one- and two-person households, he said.
Goodwin responded that such a rate structure is “designed to punish those who use a lot of water and redistribute that to those who only use a small amount of water. What it has done is create a system where people are terrified to use water, and they’re angry about water rates.”
Hobbs asked whether Goodwin wanted to “charge the people more that use the least so they can pay their fair share?” adding that “these are also the same people that are complaining the most about the increase in the water charge.”
Hobbs also asked whether the council really wanted to encourage higher usage.
“You’re trying to use more water, but you’ve got to remember, our community as a whole, we’ve got a lot of senior citizens in this community,” said Councilor Greg Mahler. “We’ve got a lot of low- to middle-income in this community. Those folks there are not going to use more water. I don’t care what you do, they’re not going to use more water, so where are you going to get more water usage?”
“You’re wanting to move it back into the low-volume users, which once again are frequently going to be people in apartments, small families, one- and two-people families,” Hobbs said. “You’re wanting to increase their rate? And you somehow think that since the vast majority of our people in that range will not cry foul like crazy?”
“I don’t like raising the rates hardly at all,” said Councilor Dave Trask. “I would use more water, but when I did last year, my rate almost doubled because I wanted to water my grass.
“But we’re between a rock and a hard place here. If we raise the rates at this rate that you’re (Adams) proposing, we get a certain amount of money. But if we don’t raise the rates, and we go with something on the other side of that assuming that hopefully people will use more water then that’s pretty iffy. I don’t know how we’re going to come to a consensus here.”
Trask said he was between options two and three. Mahler agreed. He wanted to see an option four, something like $5 per month.
“I think we’ll be hard-pressed to sell the citizens $10.19,” Mahler said.
That leaves room to work with Goodwin’s numbers too, Goodwin said, and he asked that Adams return with options that decrease the commodity charge.